The US dollar increased by Rs2 in the last four trading sessions and reached a two-week high in the open market on Monday.
The greenback traded above Rs160 for the first time since July 2, when it started losing value against the rupee ahead of International Monetary Fund’s approval for a $6 billion bailout package, the country’s 13th bailout program since the 1980s.
The dollar fell by more than a rupee to Rs157 on July 4, a day after the IMF dispatched first tranche of nearly $1 billion to the State Bank of Pakistan, and kept trading at the same level for the entire week.
However, it started gaining against the rupee late last week and was back at Rs160 in the opening hours of the market on Monday. The interbank rate was slightly higher at Rs160.20.
The interbank rate is the benchmark rate to determine the value of dollar and sets the direction for open market rates. Since the open market or cash market rate usually remains higher than the interbank rate, the open market is likely to follow a similar trend throughout the day. The final rates for both cash and interbank market are compiled in the evening when businesses close.
In the last week of June, the dollar had increased sharply to its all-time high of Rs164.2 against the rupee. It surged by Rs8 in a couple of days, witnessing its biggest one-day rise of the year on June 27.
The foreign currency market remained uncertain, at times volatile, throughout the second half of 2018 and similar trend was witnessed this year. Barring a few stints of stability, the dollar showed no signs of stabilizing. The rupee-dollar exchange rates became more volatile ahead of Pakistan’s formal entry to the IMF’s loan program as the greenback rose sharply before falling back.
The IMF, among other things, requires the government to leave the rates to market forces of demand and supply. This means the central bank would not fix the rate to keep the rupee artificially inflated, something it did in the tenure of former finance minister Ishaq Dar.
Both traders and end users have been closely monitoring dollar rates since the present government’s started its term in August 2018. The dollar was trading at Rs124 when the PTI government was sworn in, but rose by more than 29% to its current value since then.
As Pakistan formally enters the IMF programme, the policy of market-driven exchange rates will remain in place. The State Bank of Pakistan will neither fix the exchange rate nor completely leave it to market forces, Dr Reza Baqir, the SBP governor, said at a recent press conference. “We will keep a close eye on its movement and intervene to avoid any speculative movement and volatility,” he said. Dr Baqir termed the regime to be a ‘market-based exchange rate system’.